New Delhi: Indian Oil Corp (IOC), the country's biggest refiner, is exploring options including a merger to save loss-making unit Chennai Petroleum Corp (CPCL), its chairman B Ashok told Reuters on Wednesday.
CPCL's attempts to raise funds have been constrained due to a 15.4 per cent stake held in it by a unit of Iran's Naftiran Inter Trade Co Ltd (NICO). Western sanctions against Tehran due to its nuclear programme have made businesses difficult for companies with ties to Iran.
"At the moment there are certain difficulties," Mr Ashok said. "CPCL requires infusion of funds and we are looking at various options including a merger of CPCL with IOC."
CPCL has informed the Board for Industrial and Financial Reconstruction, a government body that identifies sick firms, about a significant reduction in its net worth due to volatile oil prices and forex losses in the year ended March 31.
The company in May planned a rights issue to raise up to Rs 1000 crore ($163 million) but abandoned it after NICO said it wanted to subscribe to the shares and maintain its holding.
Sanctions have toughened monetary transactions with Iran, making it difficult for the Indian company to raise funds from the market or allow parent IOC to infuse funds.
CPCL, whose two refineries can process 230,000 barrels per day of oil and account for about 5.4 per cent of India's total capacity, could not pay dividends to NICO in 2010-11 and 2011-12 due to the sanctions, it said in its annual report.
The refiner stopped processing Iranian oil in 2012 after losing insurance for those supplies, while cover for crude imports from other countries was cut due to its ties with the Iranian firm.
ICO has initiated steps to build a 5 million-tonnes-a-year liquefied natural gas (LNG) terminal at Ennore in the country's east coast by the end of 2017 or early 2018, Ashok said. The company owns a 45 per cent stake in the LNG project.
"We are talking to various parties ... we will give a stake to whoever adds value to the project," Mr Ashok said.
IOC plans to buy 0.7 million tonnes annually of LNG from the Cameron LNG plant in Lousiana where Japan's Mitsubishi has a stake. It will buy 1.2 million tonnes from Petronas' British Columbia project in which it has a 10 per cent stake.
(1 dollar = 61.4100 rupees)
Copyright @ Thomson Reuters 2014
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